Fiduciary responsibility has always been a concern for retirement plans governed by the Employee Retirement Income Security Act of 1974 (ERISA). The language on the Department of Labor (DOL) Fiduciary Responsibilities webpage explains, “The primary responsibility of fiduciaries is to run the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and paying plan expenses.”
Fast forward to 2024 and what the National Association of Plan Advisors reports “may be the first case of an employee alleging a fiduciary breach by their employer’s health care practices has just been filed.” That court case is Lewandowski v. Johnson & Johnson, a class action lawsuit filed by an employee of Johnson & Johnson in the U.S. District Court for the District of New Jersey on February 5, 2024. It is the basis for a recent International Foundation webcast, “Not One and Done: Understanding ERISA Liability in the Context of Pharmacy Benefits.”
David McKay, Esq., of the Law Offices of David A. McKay LLC explains in the webcast that, echoing language found in many 401(k) excessive fee suits, Lewandowski v. Johnson & Johnson alleges that plan fiduciaries breached their duty to exercise due care when they failed to responsibly bargain to obtain better rates for their generic prescription drug plan. McKay explained the allegations of the lawsuit in detail, including the specific medications and their costs under the plan, the breaches of fiduciary duties involved, the failure of the plan to provide plan documents upon request and the demand for relief. The lawsuit is still early in the process, and several amendments have been filed since February. As an ongoing case, plan sponsors and fiduciaries will want to follow its status.
Additional takeaways for plan fiduciaries in consideration of this lawsuit include the following.
- McKay states that the case is a “wake-up call for plan administrators as it’s the first of its kind.” This lawsuit is the first time a plan participant is suing the plan administrator—not their Pharmacy Benefit Manager (PBM) directly—for failing to exercise fiduciary duty in monitoring the PBM.
- The case will highlight interactions of the plan fiduciaries, PBMs and PBM consultants on how prescription drugs are priced.
- According to an analysis from Groom Law Group on the facts of the case, “PBMs, in addition to brokers and consultants utilized by plans in contracting with PBMs, are incentivized to work against the interests of plans” and that they “steer participants to drugs with the highest profit margin for the PBM.”
- The allegations in the lawsuit focus on the price of several specialty generic medications and that the plan overpaid due to failing to “adequately negotiate” through their contracting process.
- Plans should review their PBM contract and monitor their service providers.
- Plans should review their plan documents.
In addition to the above, speaker Susan Hayes, chief executive officer of Pharmacy Investigators and Consultants, identified best practices for plan sponsors to address. The best practices include the following.
- Conduct a routine market check. This may include a Request for Information (RFI) or a Request for Proposal (RFP).
- Find, read and understand your PBM contract.
- Audit your plan and PBM every year.
- Review your plan design and understand the terminology of the plan.
- Monitor claims every year.
To learn more about health and welfare plan fiduciary responsibility, view the entire webcast recording, “Not One and Done: Understanding ERISA Liability in the Context of Pharmacy Benefits.”
Developed by International Foundation Information Center staff. This does not constitute legal advice. Please consult your plan professionals for legal advice.
